Need for a Hybrid Unit Linked Insurance Policy
ULIP is an abbreviation for the Unit Linked Insurance Plan. It came into existence to provide benefits of both worlds of insurance and investments as one single solution. The plan is considered to be a hybrid of Life Insurance Policy and Mutual Funds. In the recent times, the pure vanilla Life Insurance Plan which provided only the insurance coverage and no monetary benefit was unable to attract the return hungry consumers which led the insurance companies to think about the profit plus insurance coverage policy which was a huge market hit. These policies provided the fixed and assured returns which were not that high.
The investments done by the agencies to meet the returns assured to policy holders were not disclosed and the portfolio was decided by the insurers. Lately a new type of policy, known as ULIP policy came to the picture where the surplus from the premium was allocated in a ‘Unit Fund’ for investment. In this plan, consumer decides which type of portfolio he wants for his money to be invested. The options available are many like bonds, equity, bank deposits and money market investments.
The return given by this policy directly depends on the performance of the portfolio chosen by the policyholder which also further depends on the performance of the capital market. There is no guaranteed return on investments in Unit Linked Insurance scheme and the value of investments varies just like any other Mutual Funds. But it also offered a stock market driven potential for high returns on investments which came at the expense of market risks. The investment is denoted as units and value attained by it is represented by frequently updated parameter called the NAV (Net Asset Value).
History
Life insurance in India started way back in 1818 with establishment or Oriental Insurance in Kolkata. The Indian Life Assurance Companies Act came into action for regulating the life insurance business in 1912. The first Indian insurance company was the Bombay Mutual Assurance Society Ltd, formed in 1870 in Mumbai.
By the year 1938 there were 176 insurance companies in India. In 1999, IRDA was established as the regulator for all the insurance business in India. Now, India has many public and private players working in insurance business like LIC, Bharati AXA , ICICI Prulife, Future Generali, UTI,SBI etc. With new developments in the insurance policy, finally the plans which provided the dual benefit of ‘sum assured’ plus the ‘fund value’, in the event of an unforeseen occurrence became popular. The new type of Unit Linked Insurance Plans involves risks of investors’ money because the investments are done in capital market and the return is not guaranteed.
These came into picture around 1960s and became very popular in the world. In 1971 the Unit Trust of India offered the first ULIP policy in which a small part of premium was utilized for providing life cover and balance was invested in units.
Since, the investment risk is borne by the policyholder, stock market regulator Securities and Exchange Board of India looked into dynamics of the ULIP-Scheme business. On April 9, 2010 SEBI barred 14 life insurance companies from selling or renewing ULIPs unless they registered with it. These ULIPs had already got the approval from IRDA which led to a legal tussle between two regulators. Finally on June 18 2011, in an amendment favoring IRDA over SEBI an act was signed by President Pratibha Patil.
There are many Unit Linked Insurance Plans available now with various flexibilities including that of choosing the portfolio on a la carte basis, various other schemes like top-ups, premium holidays and other customizations. Do post a comment in case of doubt or any further queries.
July 18, 2011 at 3:50 pm
Is this scheme only applicable for indians?
July 21, 2011 at 6:09 pm
What does the term carte basis mean?